Money market
Money market The money market is a general term for the markets in which banks lend to and borrow from each other, trade financial instruments such as Certificates of Deposit (CDs) or enter agreements such as Repos and Reverses. The market normally trades in maturities up to one year. It provides short to medium term liquidity in the global financial system. Derivatives of the money market include forward rate agreements (FRAs) and futures.
Trading takes place between banks in the "money centres" (New York and London primarily, also Chicago, Frankfurt, Paris, Singapore, Hong Kong, Tokyo, Toronto, Sydney).
Critical path
Critical path In project management, a critical path is the sequence of project network terminal elements with the longest overall duration (project management), determining the shortest time to complete the project.
The duration of the critical path determines the duration of the entire project. Any delay of a terminal element on the critical path directly impacts the planned project completion date (i.e. there is no slack on the critical path).
A project can have several, parallel critical paths. An additional parallel path through the network with the total durations just shorter than the critical path is called a sub-critical path.
Originally, the critical path method considered only logical dependencies among terminal elements. A related concept is the critical chain, which adds resource dependencies.
The critical path method was invented by the DuPont corporation.
Business software
Business software is generally any
software program that helps a business increase productivity or measure their productivity. There are many kinds of business software. A good way to categorize them is by the small, medium and large matrix.
The small business market generally consists of home accounting software and office applications suites like Microsoft Office. The medium size, or SME, has a broader range of software applications, ranging from accounting, groupware, Customer Relationship Management, human resources software, and other productivity enhancing applications. The last segment is enterprise level software applications, like enterprise resource planning software. These applications are very extensive, and often come with modules that can either incorporate the functionality of other software programs or else add on native functions.
Content of a business plan
Content of a business plan
A business plan can be seen as a collection of sub-plans including a marketing plan, financial plan, production plan, and human resource plan. The business plan has many forms. There is however a format that is typical:
- Executive summary
- explains the basic business model
- gives rationale for the strategy
- Background
- gives short history of company (unless it is a new company)
- provides background details such as:
- age of company
- number of employees
- annual sales figures
- location of facilities
- form of ownership including
- sole proprietor
- Partnership
- entrepreneurial startup
- private corporate startup
- publicly traded corporation.
- public utility
- Non Profit Organization
- background of key personnel including
- owners
- senior managers
- head scientists and researchers
- Marketing
- Production and manufacturing
- describe all processes
- production facility requirements - size, layout, capacity, location
- inventory requirements - raw materials inventory, finished goods inventory, warehouse space requirements
- equipment requirements
- supply chain requirements
- fixed cost allocation
- Finance
- source of funds
- expected return
- break even analysis
- monthly pro-forma cash flow statement
- existing loans and liabilities
- Human resources
- assign responsibilities
- training required
- skills required
- union issues
- compensation
- skills availability
- new hiring
Specialized sections such as product research and development, legal strategies, marketing research, or inter-company collaborations, are added to deal with unique features or characteristics of the business or its markets.
Business plan
A
business plan is a summary of how a
business owner, manager, or
entrepreneur intends to organize a
commercial endeavor and implement activities necessary and sufficient for the venture to succeed. It is a written explanation of the company's
business model.
Business plans are used internally for management and planning and are also used to convince outsiders such as banks or venture capitalists to invest money into a venture.
Business plans are noted for often quickly becoming out of date. One common belief within business circles is that the actual plan may have little value, but what is more important is the process of planning, through which the manager gains a greater understanding of the business and of the options available.
Tools for business intelligence
Tools for business intelligence
People doing business intelligence have developed tools that ease the work, especially when the intelligence task involves gathering and analyzing large amounts of data. These are some tools commonly used for business intelligence:
Companies providing BI software / Project implementation
Business intelligence
Business intelligence (
BI) is the
process of gathering
information in the field of
business. It can be described as the process of enhancing
data into
information and then into
knowledge. Business intelligence is carried out to gain
sustainable competitive advantage, and is a valuable
core competence in some instances.
Information is typically obtained about customer needs, customer decision making processes, the competition and competitive pressures, conditions in the industry, and general economic, technological, and cultural trends. Every business intelligence system has a specific goal, which is derived from an organisational goal or from the vision statement. Goals could be short term (e.g.: quarterly numbers to Wall Street) or long term (shareholder value, target industry share / size etc).
Industrial espionage is a type of business intelligence that uses covert techniques. There is a gray area between "normal" business intelligence and industrial espionage.
Business performance management is a software oriented business intelligence system that some see as the new generation of business intelligence though the terms are used interchangeably by most in the industry.
Greenmail
Greenmail or
greenmailing is a corporate acquisition strategem for generating large amounts of money from the attempted
hostile takeover of large, often undervalued or inefficient companies. It proved lucrative for investors such as
T. Boone Pickens and
Sir James Goldsmith during the
1980s.
Greenmailing is a variant of the corporate raid strategy of taking over an undervalued company, dismembering it, and selling off its valuable pieces for a profit. Once having secured a large share of a target company, instead of completing the hostile takeover the greenmailer offers instead to end the threat to the victim company by selling his share back to it—at a vastly inflated price, however. To preserve its own existence, the victim will often pay the exorbitant premium demanded. Goldsmith, for example, made $90 million from the Goodyear Tire and Rubber Company in the 1980s in this manner.
Changes in the details of corporate ownership structure and in the investment markets generally have made greenmail far less common since the early 1990s.
Poison pill
Poison pill is a term referring to any strategy, generally in
business or
politics, which attempts to avoid a negative outcome by increasing the costs of that outcome to those who seek it. This is a reference to
literal poison pills (actually often vials of cyanide salts) carried by various spies throughout history, and by Allied leaders in WWII.
Business
In business, it is often used to avoid a hostile takeover bid. These are attempts by a potential acquirer to obtain just over 50% of the shares of the target company, and thereby gain control of the board and, through it, the company's management. There are several types of "poison pills" that can be planned by a company that thinks it may be the target of a takeover by a potential acquirer:
- The target issues a large number of new shares, often preferred shares, to existing shareholders. These new shares usually have severe redemption provisions, such as allowing them to be converted into a large number of common shares if a takeover occurs. This immediately dilutes the percentage of the target owned by the acquirer, and makes it more expensive to acquire 50% of the target's stock.
- The target takes on large debts in an effort to make the debt load too high to be attractive -- the acquirer would eventually have to pay the debts.
- The company buys a number of smaller companies using a stock swap, diluting the value of the target's stock.
- The target phrases all its employee's stock option grants to ensure they immediately become vested if the company is taken over. Many employees can then exercise their options and then dump the stocks. With the release of the "golden handcuffs", many discontent employees may quit immediately after they've cashed in their stock options. This poison pill is designed to create an exodus of talented employees. In many high-tech businesses, attrition of talented human resources often means an empty shell is left behind for the new owner.
- Peoplesoft guaranteed its customers in June 2003 that if it were acquired within two years, presumably by its rival Oracle, and product support were reduced within four years, its customers would receive a refund of between two and five times the fees they had paid for their Peoplesoft software licenses. The hypothetical cost to Oracle was valued at as much as US$1.5 billion. The move was opposed by some Peoplesoft shareholders who believed the refund guarantee flagrantly opposed their interests as shareholders. Peoplesoft allowed the guarantee to expire in April 2004.
It was reported in 2001 (http://www.cfo.com/article.cfm/3001307/2/c_3046510?f=insidecfo) that since 1997, for every company with a poison pill that successfully resisted a hostile takeover, there were 20 companies with poison pills that accepted takeover offers.
The trend since the early 2000s has been for shareholders to vote against poison pill authorization, since, despite the above statistic, poison pills are designed to resist takeovers, whereas from the point of view of a shareholder, takeovers can be financially rewarding.
Environmental scanning
Environmental scanning For a company to gain or maintain a sustainable competitive advantage, it must be ever vigilant, watching for changes in the business environment. It must also be agile enough to alter its strategies and plans when the need arises.
Methods
There are three ways of scanning the business environment:
- Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis
- Regular scanning - Studies done on a regular schedule (say, once a year)
- Continuous scanning - (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors
Most commentators feel that in today's turbulent business environment the best scanning method is continuous scanning. This allows the firm to act quickly, take advantage of opportunities before competitors do, and respond to environmental threats before significant damage is done.
The Learning Organization
Once information is obtained, it must be disseminated throughout the company, to all departments, and at all levels. There is resistance to this outlook because many employees feel that knowledge is power and sharing knowledge will reduce one's worth to the company. Further, all people in the company should share in the task of scanning. When all employees scan some part of the environment, and all information, so obtained, gets disseminated through out the organization, the company is said to be a learning organization.
Mergers & Acquisition and Investment Banking
M&A and Investment Banking
Historically, Investment Banks (intermediaries which assist companies in selling ownership of themselves as stock or borrowing money directly from investors in the form of bonds) have been closely associated with Merger and Aquisition activity. This is because usually a merger or aquisition is a sales opportunity for the Investment Bank. If the company wants to merge with another, it must print shares to swap, which would involve an invesment bank. If it wants to buy the other company with borrowed money, it would most likely borrow directly from investors in the form of bonds, also printed by the investment bank. Thus, Investment Banks position themselves to act as advisors on mergers and aqusitions, and usually charge a separate fee for doing so (this fee is usually the most profitable of their operations).
This system however, gives and incentive to Investment Banks to try and stimulate as much mergers and aquistions activity as possible, even though the result might not be good for the shareholders of the aquiring company. The amount of influence this has is unclear, since this activity is usually secret and since the majority of merger proposals do not go through.
Mergers and acquisitions
Mergers and acquisitions The phrase mergers and acquisitions (M&A) refers to the aspect of business strategy and management dealing with the merging and/or acquiring of different companies.
Usually these occur in a friendly setting where officers in each company involved come together to go through a due diligence process to ensure a successful marriage between all the parties involved. Historically however, this process has failed, with the majority of mergers and acquisitions failing to add shareholder value.
On other occasions, acquisitions can happen through hostile takeover via absorbing the majority of outstanding shares in the open stock market. In the United States, business laws vary from state to state; some companies have limited protection against hostile takeover. See Delaware corporations.
Financing M&A
Technically, what differentiates a merger from an acquisition is how it is financed. Various methods of financing an M&A deal exist:
- Merger:- A stock swap involves issuing stock to exchange for the shares of the other company.
- Acquisition:- A cash deal involves buying a target company with cash.
- In some cases, a company may acquire another company by issuing junk bonds to raise funds. In a 1985 merger between Pantry Pride and Revlon, Pantry Pride had to issue 2.1 billion dollars of Junk bonds to buy Revlon. The target Revlon was worth 5 times the acquirer.
Motives behind M&A
These motives are thought to be good for shareholders:
- Economy of scale: This refers to the fact that the combined company can often reduce duplicative departments or operations, lowering the costs of the company relative to theoretically the same revenue stream, thus increasing profit.
- Increased revenue (due to lack of competition): This motive assumes that the company will be getting rid of a major competitor and increasing its power to set prices.
- Increased revenue (due to "revenue synergies" aka "cross-selling"): For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts
- Synergy (better use of complementary resources)
- Taxes (a profitable company can buy a loss maker to exploit the target's tax shield
- Geographical or other diversification: This is designed to smooth the earnings results of a company, which over the long term smooths the stock price of a company, giving conservative investors more confidence in investing in the company
Bad for shareholders
- Diversification (tend to be unprofitable due to conflict of interest)
- Overextension (tend to make the organization fuzzy and unmanageable)
- Manager's hubris: Oftentimes the executives of a company will just buy others because doing so is newsworthy, and increases the profile of the company.
- Manager's Compensation: In the past, certain executive management teams had their payout based on the total amount of profit of the company, instead of the profit per share, which would give the team a perverse incentive to buy companies to increase the total profit while decreasing the profit per share (which hurts the owners of the company, the shareholders)
- Bootstrapping (example: how ITT executed its M&A)
Corporate tax
Corporate tax refers to
direct taxes charged by various jurisdictions on the
profits made by
companies or
associations. As a general principle, this varies substantially between
jurisdictions. In particular allowances for capital expenditure and the amount of interest payments that can be deducted from gross profits when working out the tax
liability vary substantially. Also, tax rates may vary depending on whether profits have been distributed to shareholders or not. Profits which have been reinvested may not be taxed.
For example, in the United Kingdom, where the main corporate tax is called corporation tax, depreciation on many capital assets (excluding finance leases and certain intangible assets) is disallowable in computing taxable profits. Instead, capital allowances (usually at the rate of 25% per annum on a reducing balance basis) may be claimed. In France, however, depreciation is allowable, within certain rates per classes of asset set down by statute.
A feature of a classical tax system which includes corporate taxation is double taxation, in that profits made by a company are subject to corporation tax, but further tax (usually income tax) is payable by the company's shareholders when the same profits are distributed by way of a dividend.
However, under an imputation tax system, some or all of the tax paid by the company may be attributed pro rata to the shareholders by way of a tax credit to reduce the income tax payable on a distribution. For many years, from 1973 to 1999, the UK operated a partial imputation system, with shareholders being able to claim a tax credit reflecting advance corporation tax (ACT) paid by a company when a distribution was made. A company could set ACT off against the annual corporation tax liability of the company
Alternatively, in certain jurisdictions, distributions are be fully or partially exempt from tax—for example, certain jurisdictions, such as Austria and Germany, operate a "double income" system on distributions, with only half of the distribution is subject to tax, or, equivaletly, the tax rate is halved, and the Netherlands operates a participation exemption under which certain distributions are exempt from tax.
Business transformation
Business transformation Business transformation is a key executive management initiative that attempts to align the technology initiatives of a company more closely with its business strategy and vision. The degree to which a company can implement new initiatives to support changes in business strategy is known as business agility. Business transformation is achieved through efforts from the business and IT sides of the company.
Business process automation
Business process automation Business process automation (BPA) is the process of integrating enterprise applications, reducing human intervention wherever possible, and assembling software services into end-to-end process flows. As a significant part of business process reengineering, BPA improves operational efficiences and reduces risks. BPA is made possible through enterprise application integration and service-oriented architecture solutions.
Marketing strategies
Strategy is the crafting of plans to reach goals.
Marketing strategies are those plans designed to reach
marketing goals. A good marketing strategy should integrate an organization’s marketing goals, policies, and action sequences (tactics) into a cohesive whole. The objective of a marketing strategy is to put the organization into a position to carry out its mission effectively and efficiently.
Marketing strategies are partially derived from broader corporate strategies, corporate missions, and corporate goals. They are also influenced by a range of microenvironmental factors.
Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned. See strategy dynamics.
Types of Marketing Strategies
Every marketing strategy is unique, but if we abstract from the individualizing details, each can be reduced into a generic marketing strategy. There are a number of ways of categorizing these generic strategies. A brief description of the most common categorizing schemes is presented below. For a more detailed explanation, follow the links.
- Strategies based on market dominance - In this scheme, firms are classified based on their market share or dominance of an industry. Typically there are four types of market dominance strategies:
- leader
- challenger
- follower
- nicher
- Only Producer
- Innovation strategies - This deals with the firm’s rate of new product development and business model innovation. It asks whether the company is on the cutting edge of technology and business innovation. There are three types:
- pioneers
- close followers
- late followers
- Growth strategies - In this scheme we ask the question, “How should the firm grow?”. There are a number of different ways of answering that question, but the most common gives four answers:
- Aggressiveness strategies - This asks whether a firm should grow or not, and if so, how fast. One scheme divides strategies into:
- building
- holding
- harvesting
- A more detailed schemes uses the categories:
- prospector
- analyzer
- defender
- reactor
- Warfare based strategies - This scheme draws parallels between marketing strategies and military strategies. There are many types of marketing warfare strategies, but they can be grouped into:
Asset stripping
Asset stripping Asset Stripping is the practice of buying a company in order to sell its assets individually at a profit.
Asset stripping is also sometimes used to describe the practice of investors dealing directly with armed militant groups in developing nations to take direct control of assets that legally belong to the state or commons or any group in society that the investor and armed militant can effectively coerce. It has led to deforestation in Africa and Colombia and to other harmful effects.
Jim Friedman on a United Nations panel on exploitation of natural resources in the Democratic Republic of Congo, listed this as one of several key concerns in "Investment and human rights".
Business ethics
General definition of Business Ethics Business ethics is the branch of ethics that examines ethical rules and principles within a commercial context; the various moral or ethical problems that can arise in a business setting; and any special duties or obligations that apply to persons who are engaged in commerce. Those who are interested in business ethics examine various kinds of business activities and ask, "Is the conduct ethically right or wrong?"
Business ethics is a form of applied ethics, a branch of philosophy. As such, it takes the ethical concepts and principles developed at a more theoretical, philsophical level, and applies them to specific business situations. Generally speaking, business ethics is a normative discipline, whereby particular ethical standards are assumed and then applied. It makes specific judgements about what is right or wrong, which is to say, it makes claims about what ought to be done or what ought not to be done. While there are some exceptions, business ethicists are usually less concerned with the foundations of ethics (metaethics), or with justifying the most basic ethical principles, and are more concerned with practical problems and applications, and any specific duties that might apply to business relationships.
Related disciplines
Business ethics isn't identical to the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible -- those who dispute that premise, such as libertarian socialists, do so by definition outside of the domain of business ethics proper.
The philosophy of business also deals with questions such as what, if any, are a the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise.
Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues.
Typical issues in business ethics
While hardly exhaustive, some typical issues addressed in business ethics include:
- accounting and financial standards, and "creative accounting"
- advertising deception
- black market sales
- bribery and kickbacks
- business intelligence and industrial espionage
- political contributions
- competition versus cooperation
- corporate governance, including hostile take-overs, fiduciary responsibility, and shareholder rights issues
- corporate crime, including insider trading, price fixing, and price discrimination
- competitive disinformation
- discrimination, affirmative action, and sexual harassment;
- employee issues, such as rights, duties, illicit drug testing, key employee raiding, and professional conduct
- environmental issues, animal rights (e.g., in agriculture), and related social concerns
- Labor issues such as union strikes and union busting
- Marketing, sales, and negotiation techniques
- Product issues such as patent and copyright enfringement, planned obsolescence, product liability and product defects
Business intelligence
Business intelligence (
BI) is the
process of gathering
information in the field of
business. It can be described as the process of enhancing
data into
information and then into
knowledge. Business intelligence is carried out to gain
sustainable competitive advantage, and is a valuable
core competence in some instances.
Information is typically obtained about customer needs, customer decision making processes, the competition and competitive pressures, conditions in the industry, and general economic, technological, and cultural trends. Every business intelligence system has a specific goal, which is derived from an organisational goal or from the vision statement. Goals could be short term (e.g.: quarterly numbers to Wall Street) or long term (shareholder value, target industry share / size etc).
Industrial espionage is a type of business intelligence that uses covert techniques. There is a gray area between "normal" business intelligence and industrial espionage.
Business performance management is a software oriented business intelligence system that some see as the new generation of business intelligence though the terms are used interchangeably by most in the industry.
History
The term was first used by Gartner and popularized by analyst Howard Dresner.
The first probable reference to Business intelligence is made in Sun Tzu's "Art of War" where he claims that to succeed in war, you should have full knowledge of your strengths/weaknesses and full knowledge of your enemy's strengths/weaknesses. Lack of either one might result in defeat. BI is the art of wading through tons of data overload, sieving through data and presenting information - both internal (from operational systems) and external (market intelligence) - on which management can act or build strategies.
Metrics /Key Performance Indicators
BI uses Key Performance Indicators (KPI) to assess the present state of business and to prescribe course of action. More and more organisations are moving towards faster availability of data. Previously data usually was available only after a month or two, which might not be the best idea if you want to hit Wall street targets. Of late, several banks have tried to move from availability of data at shorter intervals and lesser delays. For example, in businesses which have higher operational/credit risk loading (e.g.: Credit cards, Wealth management), Citibank has moved onto a weekly availability of KPI related data or sometimes a daily analysis of numbers. This means that data should usually be available within 24 hours at most times, necessicitating automation and the use of IT systems to achieve this.
So what are metrics / KPIs anyways? How do I get started?
To verify the design of the initial system, we could ask the following questions of every strategic initiative:
Goal Alignment queries:
- What is the strategic goal of the organization that is being addressed by this particular activity?
- What organizational mission/vision does it relate to?
- Do we have a hypothesis as to how this initiative will eventually improve results / performance (i.e. a strategy map)?
Baseline queries:
- What is the existing level of performance? Do we know or have the capability to know (monitoring capability)?
- Are we collecting this data and storing it somewhere?
- What are the statistical parameters of this data, e.g. how much random variation does it contain? Are we measuring this?
Cost and risk queries:
- What is the existing cost of present operations?
- How much will that increase when we go ahead with the initiative?
- What is the risk that this cost will be exceeded or achieved? Have we performed a similar sensitivity analysit on this?
- Is the money being spent on this presebt initiative the best use of the funds, or is there a better alternative usage?
- What is the risk that the initiative will fail? Has this assessment been included in the planning?
Customer and Stakeholder queries:
- Have you listed all the communities of interest that have a stake in this present initiative?
- Who are the kinds of customers/stakeholders who will benefit directly from this initiative? Who will benefit indirectly? What are the quantitative / qualitative benefits?
- Is the specified initiative the best way to increase satisfaction for all kinds of customers, or is there a better way?
- How will we know that the initiative benefits these customers?
Metrics related queries:
- What metrics will be used to define the benefit?
- Are these the best metrics? How do we know that?
- How many metrics need to be tracked? If this is a large number (it usually is), what kind of system are you planning to use to track them?
- Are the metrics standardized, so they can be benchmarked against performance in other organizations? What are the industry standard metrics available?
Measurement Methodology related queries:
- How will the metrics be measured? What methods will be used, and how frequently will data be collected? Are there any industry standards for this?
- Is this the best way to do the measurements? How do we know that?
Results related queries:
- How can we demonstrate that this strategic initiative, and not something else, contributed to a change in results?
- How much of the change was probably random?
